tv Nightly Business Report PBS January 27, 2012 7:00pm-7:30pm EST
>> susie: the u.s. economy picked up steam as 2011 came to an end, but can the momentum continue? >> it keeps us out of recession but it's certainly not gangbusters type of growth but when you look at that number you have to come away saying to yourself its not bad and its not great. >> tom: then, wall street's biggest investment banks are trying to friend facebook. we'll tell you who's in the lead to lead facebook's hotly anticipated stock sale. it's "nightly business report" for friday, january 27. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
captioning sponsored by wpbt >> tom: good evening and thanks for joining us. good news today on the u.s. economy: it grew in the fourth quarter at its fastest pace in more than year. but susie, even that growth rate was still quite modest. >> susie: tom, most of the growth came as american businesses restocked their shelves and as american consumers spent more money. let's look at the details. the commerce department reported that the nation's gross domestic product-- the value of goods and services produced in the u.s.-- rose 2.8% between october and december. but many economists were expecting 3%. >> tom: while clearly not a red hot economy by any stretch of the imagination, there are concerns over whether the u.s. can keep up even this tepid growth rate. erika miller reports from new york.
>> reporter: if you want to know what's in store for the economy, it helps to come to this store. eneslow in manhattan does not just sell shoes, it makes them in a workshop downstairs. when the economy is doing well, shoppers splurge. >> when things are good, they're going to want that second color or they are going to want something for the other part of their lifestyle that they didn't have a direct need. >> reporter: but that's not happening these days: >> they are buying to need, not to want or desire. that's what i'm seeing. >> reporter: that means the 15,000 shoes in the back of the store aren't moving quickly out the door. when companies start building up inventories, it can be a negative sign for the economy. the more merchandise there is in the stockroom, the less need there is to place new orders. and if the trend is widespread, it can force factories to scale back production. but some economists hope the inventory build-up last quarter
might actually be a positive omen. >> it does suggest to us that firms are feeling confident about future consumer demand so are willing to push up their inventory stocks. one thing about this is that its unlikely to be a persistent source of growth going forward. >> reporter: most economists are betting g.d.p. will fall a bit this quarter. but they expect growth for this year will be well above last year. >> it keeps us out of recession but it's certainly not gangbusters type of growth. >> reporter: and not fast enough to have unemployment fall significantly. many firms, including eneslow, want to hire, but they can't. >> i don't really need more hands. i need to see a little bit more growth to invest in people, to train them, to get them ready to be successful in my business. >> reporter: and the outlook for the economy depends on whether he and other business owners feel comfortable taking that step. erika miller, "nightly business report," new york. >> tom: the blue chips fell today as economic growth in the
fourth quarter came up short. adding to nervousness in the market, fitch downgraded the credit ratings on five euro-zone members, including italy and spain. we'll have more on europe and its debt crisis in a moment. first. here's how u.s. markets played out: the dow fell 74 points, but the nasdaq rose 11. the s&p 500 was down two points. the blue chips posted their first weekly net loss of the year with the dow down four of the past five session, falling a half percent on the week. the nasdaq managed to post a net weekly gain, rising just over 1%. the s&p 500 had one big rally this week and that was enough for it to finish a fraction higher tonight compared to a week ago. >> susie: the outlook for europe's economy and how to resolve its debt crisis is topic "a" in davos this week, where c.e.o.s, heads of states and billionaires are meeting at the swiss resort for the annual world economic forum. also attending, u.s. treasury secretary timothy geithner who urged european leaders today to
put more cash in their bailout funds. joining us now to talk more about that and the other headlines coming out of davos, scott macdonald head of economic research at m.c. asset management holdings. >> i want that experience >> busy day, busy week. >> susie: absolutely. the big debate in davos over this europe's bailout fund, we've got on the one side germany's angela merkel saying, we need more austerity measure, not money in the bailout fund. and pretty much everybody else stacked up on the other side, besides geithner there is the imf christine la guard there is george sorros, many others saying you need to put more money in these bailout funds. what do you think, what is the better strategy? >> well, i think the issue that you're facing is you have to have some degree of economic growth. the problem right now is with the austerity plan, you're follow going to have any economic growth. and some ways it becomes totally punitive after a while for a country like greece which contracted over
5% last year. so you're going to need a little bit more fund on the side, a little more flexibility. and you have to have some degree of growth within the european union to allow these countries to work their way out. >> susie: well, it is interesting you say that because also at davos economist near yell rubini who is good at making predictions was getting attention saying there is a possibility of a severe recession in europe and these austerity measures will make it worse, so you need the growth. but we're not hearing any policies from any european country about how to achieve growth. so how is this going to play out? >> well, i think the issue is look, the governments are not spending both on the national and subnational level. the banks are not lending. the banks are borrowing from the ecb under a longer-term facility. you don't have capital being pumped into the economy from really any direction. and most major corporations are being-- playing it very safe. so there's not a lot of prospects for growth here.
for them to loosen things up would require probably countries like germany to back off a little on austerity, to provide growth in the german economy which in turn would probably help some of the southern european economies, or the peripheral economies. without that, you have this problem. >> susie: talk about the peripheral economies there is greece. there was a lot of talk about the debt crisis in greece and speculation that a deal with greece's creditors might be reached this weekend. how realistic is that? >> i think, you know, let's put it this way. i think everybody's hopeful there is an agreement. but the issue is, even if you get the agreement, it's a 50% haircut that's been discussed. the debate has been over the size of the interest rates that are paid out. but even if you get this deal done and you reduce the debt, you're only going to take greece's debt down to 120% of gdp by 2020. that's to the going to resolve the issue. so i think if they get the deal done, utility have a
big problem with greece going forward. >> susie: as tom mentioned a moment ago, fitch ratings cut the ratings on a couple of countries including italy and spain. are these the new-- the next ones in the crisis limelight? how worried should we be about italy and spain? >> well, i think you should be very worried about italy and spain. i think from the standpoint that they have to do a considerable amount of financing, you have a big spike in italian financing that comes up at the end of february. and between february through june, i think, it's close to a hundred billion dollars that has to be financed. spain has financing. other european sovereigns have financing. and the really scary thing is you look at where portugal's going. port began's five-year cds is well over a thousand right now which puts-- it's heading towards the greek levels. so there's a lot here to be very concerned about going forward. >> and everybody is very conditioned about all of that. scott, thanks for coming on
the program tonight. >> pleasure's mine. >> susie: we've been speaking with scott macdonald at m.c. asset management holdings. >> i want that experience working in the manufacturing field because it's important to me. >> tom: still ahead, we head to a chicago high school that's training the next generation of factory workers. tom: federal government investigates the residential mortgage-backed securities market. holder announced them as some of the first actions of a new working group that partners federal and state investigators, >> this new group is president of president obama's financial fraud enforcement task force which started back in 2009. holder did not say which companies received subpoenas. de say they would not be the last. >> susie: disappointing quarterly results from ford motor today. the big automaker blamed weakness overseas and higher commodity costs, although north
american sales were strong. ford earned 20 cents a share in q-4 compared to a nickel a year ago, but below the 25 cents wall street expected. but, revenues came in stronger than expected, up 6% to $34.5 billion. earlier today i spoke with ford c.e.o. alan mulally and asked him about the environment in 2012. >> based on the economy, and the industry growing and us increasing our share, we believe that we will have a very nice growth plan in 2012, both in sales and also in revenue and also in profits. >> reporter: ford has stayed on a money-making road for three straight years. still, investors seem worried ford's future remains bumpy. in the last year, the stock has lost a third of its value. >> ford has dramatically improved in value over the last five years and its increased in value this year. but, i think the bigger backdrop
here is people are concerned about the fundamental economy that it so important to the automobile industry. >> reporter: the big wildcard for ford this year is europe, as the region continues to struggle. ford is cutting european production in the current quarter by 36,000 vehicles in anticipation of slower sales. >> europe is the biggest concern that we all have because sovereign debt issue are real. i'm so pleased that the leaders are decisively trying to figure out a comprehensive solution that deals with that. but, the indicators are that the economy is slowing down. >> reporter: even if europe stumbles, ford is counting on u.s. sales to help keep the company on a profitable path this year, just as they did in the fourth quarter. >> pent up demand is incredible. the average age of vehicles on the road today is nearly 11 years old, and so it's an economic reason to want to replace your older vehicle with a sufficiently more fuel efficient vehicle that we have today.
>> ford is the first of the big three automakers to show us what is under its hood. gm reports its results next month. >> ford share tax a hit today town about 4% in an otherwise mixed market. let's get you updated on this friday night th our market to kuchlts >> tom: the stock market limped along ending mixed on the slower than expected economic data as well as the lack of any big positive earnings news. even news on the most hotly anticipated stock offering in years couldn't improve the broad market. the "wall street journal" reported this afternoon facebook could file its i.p.o. paperwork next wednesday. the social networking website is expected to try and raise $10 billion. if successful, it would value the company at close to $100 billion. it would be the largest global i.p.o. in history. andrew tonner is an analyst at the motley fool. he's a little skeptical about the valuation, even with facebook's 800 million subscribers.
>> you see tremendous growth numbers coming out of facebook but at the same time not necessarily on the scale of a $100 billion company. >> reporter: with the facebook stock offering coming, the journal reported morgan stanley is close to being the lead investment bank to handle the highly anticipated stock offering. shares got a pop, up 2% to their highest stock price since october. if it is the lead underwriter of the facebook initial public offering. it would be in line to collect tens of millions of dollars in fees. while the financial sector was the best today, it wasn't enough to pull the market into the green. the s&p 500 spent most of the day in the red, moving up into positive territory in the final hour. but it couldn't hold on to the buyers and ended with a small loss. the utility sector saw the brunt of the selling. this exchange traded fund follows the sector. it lost 1% today and is down more than 3.5% so far this year after being the best sector in 2011. the leading losers, a.e.p., down
more than 3% despite a strong fourth quarter earnings report. but retail volume was down. natural gas provider oneok and public service fell 2.5% each. a different kind of energy company was the biggest drag on the dow. oil giant chevron fell 2.5%. volume picked up with shares dropping to a five week low. chevron's fourth quarter lost some power, coming in short of expectations thanks to losses in its refining business. that loss overshadowed a big new oil and natural gas reserves. procter and gamble's latest quarterly earnings were two cents better than anticipated. it expects its profits to improve as the year wears on thanks to easier comparisons of commodity costs. but p&g cut its earnings forecast, blaming a stronger dollar. shares dropped three quarters of 1%. not a big drop, but it push shares down to their lowest close since december first. we saw a muti-billion dollar merger today. this one in the chemicals
industry with an eye on improving auto and consumer electronics business. eastman chemical will buy solutia for just over $3 billion. it's a stock and cash deal at $27.65 per share. solutia rallied more than 41% and eastman chemical jumped seven. finally tonight, we're all seeing prices at the pump creep higher. gasoline futures are at their highest prince since august. conocop-philips shut down a new jersey refinery for repairs. and that's tonight's market focus.
>> susie: last night we told you about the difficulty u.s. factories are having finding skilled workers. part of the problem is many high schools and community colleges have all but abandoned vocational education. but that's changing. tonight diane eastabrook takes us to a chicago public high school that is trying to train the factory workers of the future. >> wait a minute. don't you have to touch off on it first. >> reporter: pablo varela's machining class at chicago's austin polytechnical academy is sort of an amped up shop class. teens crank out metal parts on a lathe and get certified to run equipment found in many factories. >> go ahead. now press it. all right, now let it go, let your foot out, too. >> reporter: austin polytech on the chicago's gritty west side is trying to fix the worker shortage facing many u.s. factories. and provide a path to prosperity
for some of the city's most disadvantaged kids. the curriculum at the five-year- old high school is geared toward helping students pursue careers in engineering and manufacturing. or perhaps in torres hughes case, a job in sales. >> working on the machines helps you more with being a sales person. you can tell them your experience as a machinists you knows what goes into the machines, the production with the material. >> reporter: career and community programs director erica swinney says the idea is to give kids a leg up whether they go onto college or not. >> all of our students take three to four years of engineering while they're here at austin polytech and then all juniors take a machining course and that course allows them to take up to three if not more nationally recognized credentials in machining. >> reporter: austin polytech sits in one of chicago's poorest neighborhoods. unemployment here is high in part because many of the plants that once provided jobs closed when lower-skilled factory work moved overseas. >> the school has had challenges too.
many of the kids coming in here as freshman lack basic learning skills. some are reading and doing math at a 4th grade level. >> when i say natural log of "x" it means "e" to the "y" equals "x." >> reporter: classes are kept small, so teachers like steve mcilrath can help students master calculus. >> do you want to interview, lauren, next wednesday? >> reporter: retired executive bill vogel helps line up internships and job interviews for students. many chicago companies are eager to hire them. craig freedman hopes to snag some austin polytech grads for jobs at his seat factory that pay up to $30 an hour. >> these kids are coming out of the school with credentials that put them in a position to almost get almost on the machine and operate it and program it and we saw that during some internships this summer where we had two students almost able to plug them right in. >> reporter: the school itself is going through a learning process.
last year austin polytech graduated its first class, since then only one student out of 100 has gotten a factory job. but the school is confident it can arm students with the right tools to succeed in the new world of manufacturing. diane eastabrook, "nightly business report," chicago. >> tom: here's what we're watching for next week: our friday market monitor guest is marshall front, chairman of front barnett associates. on the economic calendar: auto sales and the january employment report. and monday, beer sales are down, yet demand for hard liquor is rising. we look at what it means for the beverage sector. >> susie: the food and drug administration today reported it has found small amounts of a banned fungicide in orange juice imports from brazil. while the agency says the juice is safe to drink, the chemical is not approved for use in the
united states and that means the juice has to be destroyed. the f.d.a. began testing imports earlier this month, after coca- cola, which owns the minute-maid brand, reported finding the chemical in juice imports from brazil. >> tom: california passed stringent new standards today for auto emissions: the california air resources board unanimously approved the rules requiring by 2025 one in seven new cars sold in the golden state be an electric hybrid or other zero-emission vehicle. the plan also calls for a 75% reduction in smog-forming pollutants by 2025. automakers and federal regulators worked with the state and hope to create one national standard for those pollutants.
>> tom: the hunt for big dividends is not over according to tonight's market monitor. he's hank smith, chief investment officer at haverford investments, with more than $6 billion under management. it's great to see you, welcome back. >> great to be with you, happy new year as well. >> tom: you have heard about this worry, investors have been piling into big dividend stocks for more than a year because bonds aren't paying anything they are looking for some payment on an interest rate. is this too crowded of a trade at this point? >> it depends by what you mean of too crowd of a trade. clearly it was the best performing sector last year. you about i think most
importantly for today's investor the opportunity still exists because you still have so many companies through multiple sectors that have big juicy dividends. and with the federal reserve coming out and basically saying they want to keep interest rates low for the next two years this is the new fixed income. >> tom: and you have picked including johnson & johnson, j & j, this is one of those that hasn't necessarily participated in the rally that we've seen, at least to any significant degree. here in the mid 6s,-- mid 60s, rather, with a yield of 3.5%. what are your expectations? >> well look, at some point the consumer product safety issues they've had are going to be behind them, despite today's announcement. and the pipeline we think is a little bit stronger than what analysts are giving credit for. so we think incrementally news can get better for johnson & johnson. and really this is a stock with so little expectations. >> tom: okay, on one hand are you looking health care. on the other hand snack food
and sugary drinks with pepsi. although it has been trying to put together a healthier profile as well. pep the share price well off the highs that we saw back in the spring and summertime with the yield at 3%. you expect the stock to be how high in a year? >> well, there's a lot of pressure on management to deliver shareholder returns. because this has been a relative underperformer. we think the commodity headwind is behind them. and with this shareholder agitation for better returns, we're looking at, you know, 10, 15% return, total return for pepsi. >> tom: of course pepsi is known for the drink but does more business in the snack food with frito-lay than pepsi doesn't it. >> it does. and there is trem cuss global opportunity with emerging economies with that snack brand. >> tom: you like due pont, double d,, the ticker symbol, more than a century old why is this a pick for the new century. >> dupont had a bear market back in the late summer,
early fall it was part of the market forecasting a recession that didn't materialize. so depont's fundamentals actually look pretty good. it's a terrific ag play. and we think with earnings growth in the 10, 12% range for this year, it's a good value. >> tom: double-digit growth range sounds good. almost a year to the day that we last saw you, hank, january 21 ls of last year. you had several picks and i want to walk through these here. johnson control off 18%, whirlpool down 39%. do you still like any of these, any money still? >> we've sold whirlpool in the middle of last year, clearly we were very early about a rebound in housing. and whirlpool really is not at the top tier of quality so we were very quick to get out of that. >> tom: took your losses there. others that you liked back then, jp more begun and wal-mart. those were split. wal-mart up about 9%. mcdonald's was a big winner, of course this stock was just off of record highs just in the past couple of weeks, up 32%, do you still like these?
>> we still continue to own them. we took some profits to mcdonald's because of the increased valuation. and you can put that in pepsi which is not done what mcdonald's has done. we like morgan, a little early there and we continue to like wal-mart. >> tom: except for whirlpool you own everything we mentioned. >> that is correct. the firm owns it and i own it personally. >> tom: our friday market monitor from new york, hank smith. skuz and that's fightly business report that's "nightly business report" for friday, january 27th. goodnight everyone and have a great weekend, i'm tom hudson. we hope to see all of you again next week. "nightly business report" is made possible by: captioned by media access group at wgbh